Now that PNC Financial Services Group has sold its stake in giant money manager Blackrock Inc. for $14.4 billion, what will it do with all that money?
The Pittsburgh-based bank, one of the 10 largest financial institutions in the country, has signaled that it’s looking to make a major acquisition — but only at the right price.
PNC said Friday that it had completed the sale of its Blackrock stake, shedding 31.6 million shares of common and preferred stock through a registered offering at $420 per share. It also sold 2.65 million shares back to the money manager at $414.96 per share.
CEO William Demchak said Monday that selling the stake would leave the bank “very well-positioned to take advantage of potential investment opportunities that history has shown can arise in disrupted markets.”
Arnold Kakuda, senior analyst with Bloomberg Intelligence in New York, believes PNC will only strike at the right opportunity, similar to when the Pittsburgh bank acquired troubled National City Bank in Cleveland in 2008 during the last financial crisis.
“The financial crisis hit, and National City got into trouble. [Banks] that are healthier are able to swoop in when valuations are low,” Mr. Kakuda said. “I think that is the aim for PNC this time around.”
Bank stocks have been hit hard during the coronavirus pandemic, including PNC’s shares, which have skidded about 40% since the start of the year to under $100 per share.
Even though valuations are lower now, “[PNC] will likely wait until a good business starts trading at a distressed price” to make a move, Mr. Kakuda said.
As the coronavirus crisis lingers, “Businesses will suffer, and banks that are holding business and consumer loans will suffer, too,” he said. “PNC has gotten ready for this situation and is looking for an opening.”
Wells Fargo analyst Mike Mayo said the money from the sale of Blackrock shares — estimated at nearly $11 billion after taxes — makes what is one of the country’s strongest banks even stronger, ensuring PNC controls its own destiny.
“With this move, over $10 billion in cash can be used both to weather the recession and capitalize on acquisitions of other banks,” he said, calling PNC the “highest-quality bank in the industry.”
“It looks like Pittsburgh is not going to lose its hometown bank the way so many other cities have,” Mr. Mayo said. “We expect Pittsburgh to retain its hometown bank for many years to come.”
He, too, pointed to the example of the last economic downturn.
“During the global financial crisis, PNC purchased National City for a song,” he said. “And now they are better equipped than any bank to pursue an acquisition.”
Looking around, analysts see some potential opportunities for a deal.
Mr. Kakuda thinks Regions Financial based in Birmingham, Ala., would make a good fit because it lies in PNC’s branch banking footprint, allowing the acquirer to eliminate redundancies and cut more costs. Regions has assets of $133 billion compared with PNC’s $445 billion.
Morningstar analyst Eric Compton in Chicago likes Huntington Bank in Columbus, Ohio, with assets of $114 billion, and Fifth Third Bank in Cincinnati, with assets of $185 billion, as acquisition candidates.
“They have enough geographical overlap with PNC, especially in the Midwest, to get enough cost savings that I think they could make sense,” he said. “It would allow PNC to be the clear acquirer, as PNC has stated they don’t want to be involved in some sort of merger of equals like what BB&T and SunTrust did” at the end of 2019.
Other possible targets mentioned by analysts include Synovus Financial, based in Columbus, Ga.; Bankunited in Miami Lakes, Fla.; Pittsburgh-based FNB Corp.; and Fulton Financial in Lancaster, Pa.
Regardless if PNC finds the right suitor, selling the Blackrock stake was a smart move, Mr. Kakuda said.
The bank retained 500,000 shares it plans to contribute to the PNC Foundation by the end of the second quarter.
“This was a good time to lock in a lot of gains with Blackrock,” Mr. Kakuda said. Unlike bank stocks, “valuation is very high for Blackrock. So they bought low and are selling high.”
“This will be a severe recession,” he said. “PNC will have some extra buffer against that.”
Patricia Sabatini: PSabatini@post-gazette.com; 412-263-3066.
First Published: May 16, 2020, 3:32 p.m.
